In the forex market, there are many victims of forex fraud either retail or retail forex investors, but up to now these victims continue to surge. However, what Tian Yan Jun wants to say is that investors should not be confused by some false appearances when they speculate in foreign exchange.

Although most investors are now educated and have a certain awareness of anti-fraud, there are still many novice investors who are deceived, which may be because the types of forex fraud are constantly changing, which is hard to protect against, but more because of investor overconfidence. In today's article, Tian Yan Jun gives you a summary of the types of popular forex scams at the moment, and how to effectively identify them when you encounter such scams.

Scam 1- Unlicensed Forex broker or dealer

Retail Forex and CFD trading is heavily regulated in some parts of the world. For example: the United States National Futures Association (NFA), the United Kingdom has the Financial Conduct Authority (FCA), the Australian Securities and Investments Commission (ASIC), the Cyprus Securities and Exchange Commission (CYSEC), South Africa has the FSCA and so on.

However, retail forex trading is unregulated in many countries, so any Forex broker operating in an unregulated region does so through a foreign license from an offshore regulator.

A study by Secure Forex Brokers found that forex trading is unregulated in most parts of Africa and Asia, but many foreign CFDS brokers still accept clients from this region and are actively promoting Forex without trading restrictions.

While there are some well-known forex brokers with good regulatory records in multiple regions, there are still certain trading risks associated with their offshore operations in regions where forex trading is prohibited.

Then, we should be more worried about which unlicensed forex brokers provide trading platforms to the public, and when investors inject funds into their accounts or make large profits, they are likely to face the problem of being unable to withdraw cash.

As a rule of thumb, before choosing any Forex broker, you should go to the website of the relevant regulator and check the list of licensed Forex brokers in your country, or licensed companies that are heavily regulated overseas.

If Forex and CFD trading is banned in your country, there may be a grey area, for example, lack of regulation, but it is not illegal if you still want to trade, in which case avoid any unregulated brokers. This means always verifying the Forex broker you intend to open an account with on the regulator's website to ensure that they are authorised and legitimate.

Scam 2- False signal seller

In recent years, trading signals and intelligent trading robots have become very popular, and hardened fraudsters will certainly not miss this opportunity to cash in. These forex EAs, which automatically provide investors with signals on when to trade or close positions, seem to make it easier to make money, but they are full of tricks.

The seller may say that their signal offers a 98% success rate and ask the investor to pay the fee up front. The problem is that most of the time, these signals are not guaranteed to work. These scams are more aimed at inexperienced investors who are desperate to make a profit and are looking for a way to make their money lying down.

Before the use of trading signals, investors may only make a small number of manual trades per day. But high-frequency trading signals can mislead investors into frequent trading, which not only increases fees, but also puts your own principal at greater risk.

These Forex bots are best used for technical analysis to help you capture some trading opportunities, but should not be relied on to predict the market or as a basis for final trading decisions.

Scam 3- Price manipulation

Most Forex brokers have standard accounts with only spreads and no commission, but they make up for it on spreads. A spread is the difference between the bid price and the ask price of a currency pair.

Major currency pairs like EUR/USD have smaller spreads due to their heavy trading volume, while emerging market currency pairs have larger spreads. When prices are manipulated, you will see major currency pairs like EUR/USD have very large spreads.

Brokers can say their spreads are higher than those offered by other brokers because they are dealing with banks in the back office and can even make up other reasons. Investors should check with other brokers to see what spreads they offer for the currency pair in question. In general, for standard accounts, the spread of EUR/USD without fees is 0.7-1 points.

In addition, the buy and sell prices of a currency pair can change instantaneously between the start of a trade and its execution, which is known as the slip point. It can happen as a result of a network glitch that slows down the execution of trades, which is sometimes just a currency risk that investors face in a volatile forex market.

Are there too many slips? Bad Forex brokers can take advantage of this by refusing to execute orders in a timely manner until the exchange rate of the currency pair falls, triggering a stop loss order from the investor.

To avoid this, some brokers, such as CMC Markets, offer guaranteed stop-loss orders (GSLOs), which allow investors to hedge the risk of a slip, but may be subject to some additional fees or higher capital requirements.

Investors should always do as much background research on Forex brokers as possible and read user reviews of the brokers concerned to see if there are any complaints of price manipulation or any illegal activities, although the authenticity of many user reviews is yet to be confirmed, it is still a reference factor to be measured and compared.

Scam 4 - Ponzi Scheme and Pyramid Scheme

High-yield investment schemes such as Ponzi schemes (HYIPs) pool the resources of unsuspecting retail investors to invest in forex trading or other subjects. They operate like funds, where capital is pooled to invest on behalf of clients.

They also promise very high returns in order to lure more victims. Because a Ponzi scheme would take money from a new funder and use it to pay the original funder, it would give the appearance of legitimacy. As investors see their investments grow, they are persuaded to put more money into the scheme or refer more people to participate.

After amassing huge amounts of money from the victims, they would suddenly stop making payments, and the managers of the Ponzi scheme would close the shop and flee with the money.

Forex pyramid schemes and multi-level marketing usually involve a forex company that has a trading platform and they need to attract more investors to their platform so incentivise investors using pyramid techniques, in which the person on top recruits two people who will be underneath his pyramid. The two men below him would also recruit three, so the pyramid continued to grow.

For every person recruited, the person at the top gets a paid commission, and so on. The higher you are on the pyramid, the more commissions you get. Scammers can use schemes like this to lure victims to visit his company and sell them forex videos, signals, etc. Investors should always ask, check and confirm whether the foreign exchange company you choose has the relevant qualifications. Whether they are regulated by the relevant regulatory authorities and whether they can accept public funds for investment.

Scam 5 - The promise of rewards and dividends

The Forex market can be very volatile and margin trading carries a high risk of loss. This is why major regulators require brokers to publish risk statements on their websites, warning potential investors of the dangers they face when trading Forex and CFDS, so if you see brokers promising high deposit bonus activities, this is a flag. The promise of these rewards may just be a decoy most major regulators do not allow brokers to offer any concessions.

But generally small bonuses or rebates, for experienced investors to improve the tolerance rate, can also reduce transaction costs. So the more critical thing is to look at the investor's own trading experience, bonuses and dividends should be a double-edged sword.

Scam 6- Manage trading accounts

An investor who is inexperienced or doesn't have much time to trade forex may open a trading account and give it to a professional account manager to trade on his behalf, these professionals charge a fee for their services, scammers also take advantage of this and offer to manage the account for the investor, who may make trades that are not in the client's best interest. Or just run off with the client's money.

Investors should investigate the account manager's history to understand his past success rate, and look at their risk management strategy, past retracements to check how efficient the fund manager is. In addition, the account manager must also obtain the business license of the relevant departments, and the unqualified are not credible.

Scam 7 - Social Media scam

Most of the motivational forex videos and advertisements popular online usually show luxury yachts, cars, etc., the purpose of which is to make the viewer feel that the speaker or trading guru obtained these items from the proceeds of forex trading. These so-called masters do not talk about the disadvantages of forex trading, only the advantages. Some of them operate or partner with unlicensed brokerage firms and end up defrauding investors.

Market regulators around the world have made it mandatory for forex brokers to publish risk statements on their websites. The statement highlights the risks that investors face when trading, and some regulators go even further by requiring brokers to state the percentage of people who have lost money trading with them, which usually appears at the bottom of the broker's website page. Regulators have even put limits on the amount of leverage CFDS brokers can offer to retail investors.

Exaggerated social media propaganda, promises of benefits, and any seductive advertising are not compliant with regulatory requirements. This is impossible if the claimed project has little risk. If true, there is no way they could have come out and shared the so-called winning formula.

Don't blindly trust any advice on social media, the risk of forex trading is very difficult to manage, and trading with margin is very dangerous.